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EX-32 - EXHIBIT 32 - WCF Bancorp, Inc.a2017wcfbancorpq3exhibit32.htm
EX-31.2 - EXHIBIT 31.2 - WCF Bancorp, Inc.a2017wcfbancorpq3exhibit312.htm
EX-31.1 - EXHIBIT 31.1 - WCF Bancorp, Inc.a2017wcfbancorpq3exhibit311.htm
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549

FORM 10-Q

[X]
Quarterly Report Pursuant To Section 13 or 15(d) of the Securities Exchange Act of 1934

For the quarterly period ended September 30, 2017

OR

[   ]
Transition Report Pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934

For the transition period from _______________ to _______________

Commission File No. 001-37382

WCF Bancorp, Inc.
(Exact name of registrant as specified in its charter)
Iowa
 
81-2510023
(State or other jurisdiction of
incorporation or organization)
 
(I.R.S. Employer
Identification Number)
 
 
 
401 Fair Meadow Drive,
Webster City, Iowa
 
50595
(Address of Principal Executive Offices)
 
(Zip Code)
(515) 832-3071
(Registrant’s telephone number)

N/A
(Former name or former address, if changed since last report)

Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such requirements for the past 90 days.
YES [ X ]     NO [ ]
    
Indicate by check mark whether the registrant has submitted electronically and posted on its corporate Web site, if any, every Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such files).
YES [ X ]     NO [ ]

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, or a smaller reporting company. See the definitions of “large accelerated filer,” “accelerated filer” and “smaller reporting company” in Rule 12b-2 of the Exchange Act.

Large accelerated filer
[ ]
 
Accelerated filer
[ ]
Non-accelerated filer
[ ]
 
(Do not check if smaller reporting company)
 
 
 
 
Smaller reporting company
[X]
 
 
 
Emerging growth company
[X]

If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act. [   ]




Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act).
YES [   ]     NO [X]

As of November 9, 2017, the Registrant had 2,561,542 shares of its common stock, par value $0.01 per share, issued and outstanding.



WCF Bancorp, Inc.
Form 10-Q

Index

 
 
 
 
Page
Part I - Financial Information
 
 
 
 
 
Item 1
 
Consolidated Financial Statements
 
 
 
 
 
 
 
 
 
Consolidated Balance Sheets as of September 30, 2017 (unaudited) and December 31, 2016
 
 
 
 
 
 
 
 
Consolidated Statements of Income for the Three and Nine Months Ended September 30, 2017 and 2016 (unaudited)
 
 
 
 
 
 
 
 
Consolidated Statements of Comprehensive Income (Loss) for the Three and Nine Months Ended September 30, 2017 and 2016 (unaudited)
 
 
 
 
 
 
 
 
Consolidated Statements of Changes in Equity for the Nine Months Ended September 30, 2017 and 2016 (unaudited)
 
 
 
 
 
 
 
 
Consolidated Statements of Cash Flows for the Nine Months Ended September 30, 2017 and 2016 (unaudited)
 
 
 
 
 
 
 
 
Notes to Consolidated Financial Statements (unaudited)
 
 
 
 
 
 
Item 2
 
Management’s Discussion and Analysis of Financial Condition and Results of Operations
 
 
 
 
 
 
Item 3
 
Quantitative and Qualitative Disclosures about Market Risk
 
 
 
 
 
 
Item 4
 
Controls and Procedures
 
 
 
 
 
 
Part II - Other Information
 
 
 
 
 
Item 1
 
Legal Proceedings
 
 
 
 
 
 
Item 1A
 
Risk Factors
 
 
 
 
 
 
Item 2
 
Unregistered Sales of Equity Securities and Use of Proceeds
 
 
 
 
 
 
Item 3
 
Defaults upon Senior Securities
 
 
 
 
 
 
Item 4
 
Mine Safety Disclosures
 
 
 
 
 
 
Item 5
 
Other Information
 
 
 
 
 
 
Item 6
 
Exhibits
 
 
 
 
 
 
 
 
Signature Page
 



Part I – Financial Information

Item 1    Financial Statements

WCF Bancorp, Inc. and Subsidiaries
Consolidated Balance Sheets
September 30, 2017 (unaudited) and December 31, 2016
Assets
September 30, 2017
 
December 31, 2016
Cash and due from banks
$
4,171,094

 
$
1,716,578

Federal funds sold
715,000

 
1,306,000

   Cash and cash equivalents
4,886,094

 
3,022,578

Time deposits in other financial institutions
4,791,175

 
5,037,068

Securities available-for-sale, at fair value
40,900,127

 
44,652,837

Loans receivable
59,356,861

 
61,063,501

Allowance for loan losses
(516,319
)
 
(487,114
)
   Loans receivable, net
58,840,542

 
60,576,387

Federal Home Loan Bank (FHLB) stock, at cost
243,400

 
354,800

Bankers' Bank stock, at cost
147,500

 
147,500

Office property and equipment, net
3,829,949

 
4,041,525

Deferred taxes on income
834,083

 
934,579

Income taxes receivable
52,020

 
60,839

Accrued interest receivable
405,920

 
422,949

Goodwill
55,148

 
55,148

Bank-owned life insurance
3,114,479

 
3,021,501

Prepaid expenses and other assets
1,297,108

 
1,319,636

Total assets
$
119,397,545

 
$
123,647,347

Liabilities and Stockholders' Equity
 
 
 
Deposits
$
85,402,719

 
$
87,089,680

FHLB advances
2,500,000

 
5,500,000

Advance payments by borrowers for taxes and insurance
813,699

 
492,133

Accrued interest payable
93,681

 
3,196

Accrued expenses and other liabilities
1,615,949

 
1,715,358

Total liabilities
90,426,048

 
94,800,367

Commitments and contingencies (Note 8)


 


Stockholders' equity:
 
 
 
Preferred stock, $0.01 par value. Authorized 10,000,000 shares; issued none

 

Common stock, $0.01 par value. Authorized 30,000,000 shares; 2,561,542 issued and outstanding at September 30, 2017 and December 31, 2016
25,615

 
25,615

Additional paid-in capital
14,201,795

 
14,201,795

Retained earnings, substantially restricted
16,152,630

 
16,354,380

Accumulated other comprehensive income (loss)
(135,275
)
 
(420,466
)
Unearned ESOP Shares
(1,273,268
)
 
(1,314,344
)
Total stockholders' equity
28,971,497

 
28,846,980

Total liabilities and stockholders' equity
$
119,397,545

 
$
123,647,347

 
 
 
 

See notes to consolidated financial statements.

1


WCF Bancorp, Inc. and Subsidiaries
Consolidated Statements of Income
(unaudited)
 
Three Months Ended
September 30,
 
Nine Months Ended
September 30,
 
2017
 
2016
 
2017
 
2016
Interest income:
 
 
 
 
 
 
 
Loans receivable
$
718,780

 
$
735,492

 
$
2,166,925

 
$
2,183,032

Investment securities - taxable
136,758

 
103,028

 
442,207

 
274,187

Investment securities - tax exempt
67,508

 
89,981

 
210,853

 
301,433

Other interest earning assets
27,338

 
33,182

 
69,166

 
69,604

Total interest income
950,384

 
961,683

 
2,889,151

 
2,828,256

Interest expense:
 
 
 
 
 
 
 
Deposits
144,803

 
142,548

 
442,907

 
432,284

FHLB advances
9,562

 
15,647

 
39,660

 
54,045

Total interest expense
154,365

 
158,195

 
482,567

 
486,329

Net interest income
796,019

 
803,488

 
2,406,584

 
2,341,927

Provision for losses on loans
18,000

 

 
54,000

 
20,000

Net interest income after provision for losses on loans
778,019

 
803,488

 
2,352,584

 
2,321,927

Noninterest income:
 
 
 
 
 
 
 
Fees and service charges
115,125

 
102,103

 
331,894

 
286,301

Gains on sale of securities available-for-sale, net

 
99,853

 

 
115,100

Increase in cash value - bank-owned life insurance
25,891

 

 
92,978

 

Other income
19,596

 
26,582

 
56,414

 
44,077

Total noninterest income
160,612

 
228,538

 
481,286

 
445,478

Noninterest expense:
 
 
 
 
 
 
 
Compensation, payroll taxes, and employee benefits
393,647

 
334,542

 
1,153,577

 
981,288

Advertising
20,433

 
20,992

 
64,767

 
62,807

Office property and equipment
107,749

 
136,304

 
339,152

 
401,155

Federal insurance premiums
8,771

 
21,012

 
25,686

 
60,083

Data processing services
116,517

 
122,361

 
342,651

 
304,842

Charitable contributions

 
5,946

 
5,955

 
5,946

Other real estate expenses, net
11,400

 
1,956

 
18,091

 
4,917

Dues and subscriptions
9,487

 
10,142

 
25,881

 
41,619

Accounting, regulatory and professional fees
149,674

 
142,664

 
485,603

 
362,347

Debit card expenses
1,095

 
2,987

 
5,501

 
19,502

Other expenses
86,320

 
82,552

 
269,466

 
272,886

Total noninterest expense
905,093

 
881,458

 
2,736,330

 
2,517,392

Earnings before taxes on income
33,538

 
150,568

 
97,540

 
250,013

Tax (benefit) expense
(17,896
)
 
82,100

 
(60,297
)
 
33,015

Net income
$
51,434

 
$
68,468

 
$
157,837

 
$
216,998

Basic earnings per common share
$
0.02

 
$
0.03

 
$
0.07

 
$
0.09

Diluted earnings per common share
$
0.02

 
$
0.03

 
$
0.07

 
$
0.09



See notes to consolidated financial statements.

2



WCF Bancorp, Inc. and Subsidiaries
Consolidated Statements of Comprehensive Income (Loss)
(unaudited)

 
Three Months Ended
September 30,
 
Nine Months Ended
September 30,
 
2017

2016
 
2017
 
2016
Net income
$
51,434

 
$
68,468

 
$
157,837

 
$
216,998

 
 
 
 
 
 
 
 
Other comprehensive income (loss):

 

 
 
 
 
Net change in unrealized gains (losses) on securities
(8,795
)
 
(152,662
)
 
451,373

 
223,178

Reclassification adjustment for net gain realized in net income

 
(99,853
)
 

 
(115,100
)
Income tax (expense) benefit
3,248

 
89,471

 
(166,182
)
 
(45,391
)
Other comprehensive income (loss)
(5,547
)
 
(163,044
)
 
285,191

 
62,687

Comprehensive income (loss)
$
45,887

 
$
(94,576
)
 
$
443,028

 
$
279,685



See notes to consolidated financial statements.

3



WCF Bancorp, Inc. and Subsidiaries
Consolidated Statements of Changes in Equity
(unaudited)


 
Common stock
 
Additional paid-in capital
 
Retained earnings
 
Unearned ESOP shares
 
Accumulated other comprehensive income (loss)
 
Treasury stock
 
Total
Balance at December 31, 2015
$
433,448

 
$
9,633,893

 
$
16,635,039

 
$

 
$
93,177

 
$
(12,212,415
)
 
$
14,583,142

Net income

 

 
216,998

 

 

 

 
216,998

Other comprehensive income

 

 

 

 
62,687

 

 
62,687

Stock offering costs
(407,816
)
 
4,562,341

 

 
(1,369,104
)
 

 
12,212,415

 
14,997,836

Dividends paid on common stock,
$0.10 per common share

 

 
(279,109
)
 

 

 

 
(279,109
)
Balance at September 30, 2016
$
25,632

 
$
14,196,234

 
$
16,572,928

 
$
(1,369,104
)
 
$
155,864

 
$

 
$
29,581,554

 
 
 
 
 
 
 
 
 
 
 
 
 
 
Balance at December 31, 2016
$
25,615

 
$
14,201,795

 
$
16,354,380

 
$
(1,314,344
)
 
$
(420,466
)
 
$

 
$
28,846,980

Net income

 

 
157,837

 

 

 

 
157,837

Other comprehensive income

 

 

 

 
285,191

 

 
285,191

Release of ESOP Shares

 

 

 
41,076

 

 

 
41,076

Dividends paid on common stock,
$0.15 per common share

 

 
(359,587
)
 

 

 

 
(359,587
)
Balance at September 30, 2017
$
25,615

 
$
14,201,795

 
$
16,152,630

 
$
(1,273,268
)
 
$
(135,275
)
 
$

 
$
28,971,497

 
 
 
 
 
 
 
 
 
 
 
 
 
 

See notes to the consolidated financial statements.

4



WCF Bancorp, Inc. and Subsidiaries
Consolidated Statements of Cash Flows
(unaudited)
 
Nine Months Ended September 30,
 
2017
 
2016
Cash flows from operating activities:
 
 
 
Net income
$
157,837

 
$
216,998

Adjustments to reconcile net income to net cash provided by (used in) operating activities:
 
 
 
Depreciation and amortization
627,183

 
599,913

Provision for losses on loans
54,000

 
20,000

ESOP expenses
41,076

 

Deferred taxes on income
(65,687
)
 
(116,712
)
Gain on sales of securities

 
(115,100
)
Gain on sales of one-to-four family residential loans
(11,560
)
 
(12,310
)
Proceeds from sales of one-to-four family residential loans
861,560

 
1,189,200

Originations of one-to-four family residential loans
(850,300
)
 
(1,176,890
)
Gain on sale of other real estate owned
(9,995
)
 

Increase in cash value of bank-owned life insurance
(92,978
)
 

Change in:
 
 
 
Accrued interest receivable
17,029

 
(15,962
)
Prepaid expenses and other assets
20,206

 
(137,653
)
Advance payments by borrowers for taxes and insurance
321,566

 
(213,948
)
Accrued interest payable
90,485

 
82,905

Accrued expenses and other liabilities
(99,409
)
 
2,125,621

Income tax receivable
8,819

 
(34,457
)
Net cash provided by (used in) operating activities
1,069,832

 
2,411,605

Cash flows from investing activities:
 
 
 
Proceeds from maturity of time deposits in other financial institutions
5,398,893

 
3,315,111

Purchase of time deposits in other financial institutions
(5,153,000
)
 
(5,406,168
)
Proceeds from calls and maturities of investment securities available-for-sale
5,920,463

 
3,988,949

Proceeds from sale of investment securities available-for-sale

 
12,083,059

Purchase of investment securities available-for-sale
(2,127,431
)
 
(23,855,716
)
Net change in loans receivable
1,694,462

 
(1,968,750
)
Net change in FHLB stock
111,400

 
157,900

Purchase of office property and equipment
(4,555
)
 
(79,108
)
Net cash provided by (used in) investing activities
5,840,232

 
(11,764,723
)
Cash flows from financing activities:
 
 
 
Net change in deposits
(1,686,961
)
 
(1,856,774
)
Net change in FHLB advances
(3,000,000
)
 
(4,000,000
)
Stock sale proceeds

 
15,744,744

Merger of WCF MHC into WCF Bancorp, Inc.

 
862,549

Dividends paid
(359,587
)
 
(279,109
)
Stock offering costs

 
(1,609,457
)
Net cash provided by (used in) financing activities
(5,046,548
)
 
8,861,953

Net increase (decrease) in cash and cash equivalents
1,863,516

 
(491,165
)
Cash and cash equivalents at beginning of year
3,022,578

 
8,866,561

Cash and cash equivalents at end of quarter
$
4,886,094

 
$
8,375,396

Supplemental disclosures of cash flow information:
 
 
 
Cash paid during the year for:
 
 
 
Interest
$
392,082

 
$
245,229

Taxes on income

 
116,726

Noncash investing activities:
 
 
 
Transfers to other real estate owned from loans
60,778

 
49,500

Loans to finance the sale of other real estate owned
73,095

 


See notes to consolidated financial statements.

5



WCF Bancorp, Inc. and Subsidiaries
Form 10-Q


Notes to Consolidated Financial Statements (unaudited)

(1)
Basis of Presentation
The accompanying unaudited consolidated financial statements of WCF Bancorp, Inc. (the Company), and its wholly owned subsidiary WCF Financial Bank (the Bank), and Webster City Federal Service Corp, have been prepared in conformity with U.S. generally accepted accounting principles (GAAP) for interim financial information and in accordance with Securities and Exchange Commission (SEC) rules and regulations. Accordingly, the statements do not include all the information and footnotes required by GAAP for complete financial statements. These interim financial statements should be read in conjunction with the consolidated financial statements and notes thereto that were included in the Company’s annual report for the year ended December 31, 2016. The consolidated balance sheet of the Company as of December 31, 2016 has been derived from the audited consolidated balance sheet of the Company as of that date. All significant intercompany transactions are eliminated in consolidation. In the opinion of the Company’s management, all adjustments necessary (i) for a fair presentation of the financial statements for the interim periods included herein and (ii) to make such financial statements not misleading have been made and are of a normal and recurring nature. Interim results are not necessarily indicative of results for a full year.
In preparing the financial statements, management is required to make estimates and assumptions that affect the recorded amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the financial statements and the reported amounts of revenues and expenses for the period. Actual results could differ from the estimates. For further information with respect to significant accounting policies followed by the Company in preparation of the financial statements, refer to the Company’s annual report for the year ended December 31, 2016.
As an “emerging growth company,” as defined in Title 1 of Jumpstart Our Business Startups (JOBS) Act, the Company has elected to use the extended transition period to delay adoption of new or reissued accounting pronouncements applicable to public companies until such pronouncements are made applicable to private companies. Accordingly, the consolidated financial statements may not be comparable to the financial statements of public companies that comply with such new or revised accounting standards. As of September 30, 2017, there is no significant difference in the comparability of the financial statements as a result of this extended transition period.

The Bank is a federally chartered stock savings bank and a member of the Federal Home Loan Bank (FHLB) system. The Bank maintains insurance on deposits accounts with the Deposit Insurance Fund of the Federal Deposit Insurance Corporation (FDIC).
Organization and Business
WCF Bancorp, Inc. (the Company) is an Iowa-chartered corporation organized in 2016 to be the successor to Webster City Federal Bancorp, a federal corporation (Old Bancorp) upon completion of the second-step conversion of WCF Financial M.H.C. from the mutual holding company to the stock holding company form of organization. WCF Financial M.H.C. (the MHC) was the former mutual holding company for Old Bancorp prior to the completion of the second-step conversion. In conjunction with the second-step conversion, each of the MHC and Old Bancorp ceased to exist. The second-step conversion was completed on July 13, 2016 at which time the Company sold 2,139,231 shares of its common stock (including 171,138 shares purchased by the Bank's employee stock ownership plan, or ESOP) at $8.00 per share for gross proceeds of approximately $17.1 million. Expenses related to the

6



stock offering totaled $1.7 million and were netted against proceeds. As a part of the second-step conversion, each of the outstanding shares of common stock of Old Bancorp held by persons other than the MHC were converted into 0.8115 shares of Company common stock with cash paid in lieu of fractional shares. As a result, a total of 2,561,542 shares were issues in the second-step conversion. As a result of the second-step conversion, all share and per share information has subsequently been revised to reflect the 0.8115 exchange ratio unless otherwise noted.
The Company's principal business is the ownership and operation of the Bank. The Bank is a community bank and its deposits are insured by the FDIC. The primary business of the Bank is accepting deposits from the general public and investing those deposits, together with funds generated from operations and borrowings, in real estate loans secured by one-to-four family residences. To a lesser extent, we also originate consumer loans and non owner-occupied one-to-four family residential real estate loans. On a limited basis we have also originated commercial real estate loans, but have deemphasized the origination, and intend to continue to deemphasize the origination, of this type of lending. We also invest in investment securities. Our primary lending area is broader than our primary deposit market area and includes north central and northeastern Iowa. Our revenues are derived principally from interest on loans and securities, and from loan origination and servicing fees. Our primary sources of funds are deposits, principal and interest payments on loans and securities and advances from the FHLB. As a federal savings bank, WCF Financial Bank is subject to comprehensive regulation and examination by the Office of the Comptroller of the Currency (the OCC). As a savings and loan holding company, the Company is subject to comprehensive regulation and examination by the Board of Governors of the Federal Reserve System (the Federal Reserve Board).
The primary business of WCF Financial Service Corp (the Service Corp) was the sale of credit life and disability insurance products that were previously disallowed by savings and loan regulations. Currently the Service Corp is inactive.
Investment Securities
Investment securities are classified based on the Company’s intended holding period. Securities that may be sold prior to maturity to meet liquidity needs, to respond to market changes, or to adjust the Company’s asset-liability position are classified as available-for-sale. Currently, all securities are classified as available-for-sale.
Securities available-for-sale are carried at fair value, with the aggregate unrealized gains or losses, net of the effect of taxes on income, reported as accumulated other comprehensive income or loss. Other-than-temporary impairment is recorded in net income. The Company’s net income reflects the full impairment (that is, the difference between the security’s amortized cost basis and fair value), if any, on debt securities that the Company intends to sell, or would more likely than not be required to sell, before the expected recovery of the amortized cost basis. For available-for-sale debt securities that management has no intent to sell, and believes that it will not more likely than not be required to sell prior to recovery, only the credit loss component of the impairment is recognized in net income, while the rest of the fair value loss is recognized in other comprehensive income. The credit loss component recognized in net income is identified as the amount of principal cash flows not expected to be received over the remaining term of the security as projected using the Company’s cash flow projections using its base assumptions.
A decline in the fair value of any available-for-sale security below cost and that is deemed to be other-than-temporary results in an impairment to reduce the carrying amount by fair value for the credit portion of the loss. The impairment is charged to net income and a new cost basis for the security is established. To determine whether an impairment is other-than-temporary, the Company considers whether it has the ability to hold and lack of intent to sell the investment until a market price recovery and considers whether evidence indicating the cost of the investment is recoverable outweighs evidence to the contrary. Evidence considered in this assessment includes the reasons for the impairment, the severity and duration of the impairment, changes in value subsequent to year-end, and the general market conditions.

7



Net realized gains or losses are shown in the consolidated statements of income in the noninterest income line using the specific identification method. There were no net realized gains for the three months ended September 30, 2017 and $99,853 of net realized gains for the three months ended September 30, 2016. There were no net realized gains for the nine months ended September 30, 2017 and $115,100 of net realized gains for the nine months ended September 30, 2016.
Loans Receivable, Net
Loans receivable are stated at the amount of unpaid principal, reduced by the allowance for loan losses, deferred loan fees and discounts on loans purchased. Loans receivable are charged against the allowance when management believes collectability of principal is unlikely.
Interest on loans receivable is accrued and credited to operations based primarily on the principal amount outstanding. Certain loan balances include unearned discounts, which are recorded as income over the term of the loan.
Delinquencies are determined based on the payment terms of the individual loan agreements. The accrual of interest on past due and other impaired loans is generally discontinued at 90 days past due or when, in the opinion of management, the borrower may be unable to make all payments pursuant to contractual terms.  Unless considered collectible, all interest accrued but not collected for loans that are placed on nonaccrual or charged off is reversed against interest income, if accrued in the current year, or charged to the allowance for loan losses, if accrued in the prior year.  Generally, all payments received while a loan is on nonaccrual status are applied to the principal balance of the loan. Loans are returned to accrual status when all principal and interest amounts contractually due are brought current and future payments are reasonably assured. 
Under the Company’s credit policies, commercial loans are considered impaired when management believes it is probable the Company will be unable to collect all contractual principal and interest payments due in accordance with the terms of the loan agreement. Loan impairment is measured based on the present value of expected future cash flows, discounted at the loan’s effective interest rate except, where more practical, at the observable market price of the loan or the fair value of the collateral, if the loan is collateral dependent.
Allowance for Loan Losses
The allowance for loan losses is based on management’s periodic evaluation of the loan portfolio and reflects an amount that, in management’s opinion, is appropriate to absorb probable losses in the existing portfolio. In evaluating the portfolio, management takes into consideration numerous factors, including current economic conditions, prior loan loss experience, the composition of the loan portfolio, value of underlying collateral, and management’s estimate of probable credit losses.
Taxes on Income
Deferred income taxes are provided under the asset and liability method whereby deferred tax assets are recognized for deductible temporary differences and deferred tax liabilities are recognized for taxable temporary differences. Temporary differences are the differences between the reported amounts of assets and liabilities and their tax bases. Deferred tax assets are reduced by a valuation allowance when, in the opinion of management, it is more likely than not that some or all of the deferred tax assets will not be realized. Deferred tax assets and liabilities are adjusted for the effects of changes in tax laws and rates on the date of enactment.
The Company recognizes the effect of income tax positions only if those positions are more likely than not of being sustained. Recognized income tax positions are measured at the largest amount that is greater than 50% likely of being realized. Changes in recognition or measurement are reflected in the period in which the change in judgment occurs. Interest and penalties on unrecognized tax benefits are classified as other noninterest expense.

8



Regulatory Environment
The Company is subject to regulations of certain state and federal agencies, including periodic examinations by those regulatory agencies. The Company and the Bank are also subject to minimum regulatory capital requirements. At September 30, 2017 and December 31, 2016, capital levels exceeded minimum capital requirements (see note 6).
Investment in Affiliate
The Company records its investment in an affiliate, New Castle Players, LLC, in which it has a 27.17% interest, using the equity method of accounting. The affiliate holds an investment in a local hotel in Webster City, Iowa. The Company records the value of its investment at year-end based on the affiliate’s most current available financial statements. The investment in affiliate is analyzed annually. If impairment is determined to be other-than-temporary, the carrying amount is written down to fair value. The investment is included as a component of prepaid expenses and other assets on the consolidated balance sheets, while the equity income earned is included as a component of other noninterest income on the consolidated statements of income. Summary unaudited financial information of the affiliate as of and for the nine months ended September 30, 2017 and 2016 is presented below.
 
As of and For the
 
Nine Months Ended
September 30,
 
2017
 
2016
Current assets
$
89,759

 
$
162,802

Long-term assets
1,695,397

 
1,750,950

Current liabilities
29,746

 
57,880

Total equity
1,755,410

 
1,855,872

Total revenue
685,085

 
709,963

Net income
116,469

 
215,450

Earnings per Common Share
The calculation of earnings per common share and diluted earnings per common share for the three and nine months ended September 30, 2017 and 2016 is presented below.
 
Three Months Ended
September 30,
 
Nine Months Ended
September 30,
 
2017
 
2016
 
2017
 
2016
Net income
$
51,434

 
$
68,468

 
$
157,837

 
$
216,998

 
 
 
 
 
 
 
 
Weighted average common shares outstanding and diluted common shares outstanding (1)
2,404,096

 
2,435,221

 
2,404,096

 
2,435,221

 
 
 
 
 
 
 
 
Basic earnings per common share
$
0.02

 
$
0.03

 
$
0.07

 
$
0.09

Diluted earnings per common share
$
0.02

 
$
0.03

 
$
0.07

 
$
0.09

 
 
 
 
 
 
 
 
(1) Share and per share amounts related to periods prior to the date of completion of the Conversion (July 13, 2016) have been restated to give retroactive recognition to the exchange ratio applied to the Conversion (0.8115 to one)
Unearned Employee Stock Ownership Plan (ESOP) shares are not considered outstanding and are therefore not taken into account when computing earnings per share. Unearned ESOP shares are presented as a reduction to stockholders’ equity and represent shares to be allocated to ESOP participants in future periods for services provided to the Company. ESOP shares that have been committed to be released are considered outstanding and included for the purposes of computing basic and diluted earnings per share. 

9



Employee Stock Ownership Plan
The Company established the ESOP on July 13, 2016 in connection with its common stock offering. In conjunction with the second-step conversion described in Note 1, the ESOP purchased 171,138 shares at $8.00 per share. To fund the purchase, the ESOP borrowed $1.4 million from the Company at a variable rate equal to the Prime Rate published in The Wall Street Journal, to be repaid on prorata basis in 25 substantially equal annual installments. The collateral for the loan is the common stock of the Company purchased by the ESOP.

The shares of stock purchased by the ESOP are held in a suspense account until they are released for allocation among participants. The shares will be released annually from the suspense account and the released shares will be allocated to the participants on the basis of each participant’s compensation for the year of allocation. As shares are released from collateral, the Company recognizes compensation expense equal to the average market price of the shares during the period and the shares will be outstanding for earnings-per-share purposes. The shares not released are reported as unearned ESOP shares in the stockholders’ equity section on the consolidated balance sheets. At September 30, 2017 there were 6,845 allocated shares and 164,293 unallocated shares.   The fair value of unallocated ESOP shares at September 30, 2017 was approximately $1,569,000.

Subsequent Events
On October 27, 2017, the board of directors declared a $0.05 per share cash dividend payable on November 22, 2017 to shareholders of record as of November 7, 2017.

Current Accounting Developments
In May 2014, the FASB issued ASU No. 2014-09, Revenue from Contracts with Customers (Topic 660): Summary and Amendments that Create Revenue from Contracts with Customers (Topic 606) and Other Assets and Deferred Costs-Contracts with Customers (Subtopic 340-40). The guidance in this update supersedes the revenue recognition requirements in ASC Topic 605, Revenue Recognition, and most industry-specific guidance throughout the industry topics of the Codification. This update will be effective for interim and annual periods beginning after December 15, 2018. The Company is currently assessing the impact that this guidance will have on its consolidated financial statements, but does not expect the guidance to have a material impact on the Company’s consolidated financial statements.
In January 2016, the FASB issued ASU No. 2016-01, Financial Instruments-Overall (Subtopic 825-10): Recognition and Measurement of Financial Assets and Financial Liabilities. The update enhances the reporting model for financial instruments to provide users of financial statements with more decision-useful information by updating certain aspects or recognition, measurement, presentation and disclosure of financial instruments. Among other changes, the update includes requiring changes in fair value of equity securities with readily determinable fair value to be recognized in net income and clarifies that entities should evaluate the need for a valuation allowance on a deferred tax asset related to available-for-sale securities in combination with entities other deferred tax assets. This update will be effective for interim and annual periods beginning after December 15, 2018, and is to be applied on a modified retrospective basis. The Company is currently assessing the impact that this guidance will have on its consolidated financial statements, but does not expect the guidance to have a material impact on the Company’s consolidated financial statements.
In June 2016, the FASB issued ASU No. 2016-13, Financial Instruments-Credit Losses (Topic 326): Measurement of Credit Losses on Financial Instruments. The ASU requires that financial assets measured at amortized cost should be presented at the net amount expected to be collected, through an allowance for credit losses that is deducted from the amortized cost basis. The allowance for credit losses should reflect management’s current estimate of credit losses that are expected to occur over the remaining life of a financial asset. This is in contrast to existing guidance whereby credit losses generally are not recognized until they are incurred. This update will be effective for fiscal years beginning after

10



December 15, 2019, including interim periods within those fiscal years. The Company is currently assessing the impact that this guidance will have on its consolidated financial statements.

In March 2017, the FASB issued ASU 2017-08, Receivables-Nonrefundable Fees and Other Costs (Subtopic 310-20), Premium Amortization on Purchased Callable Debt Securities. The amendments in this ASU shorten the amortization period for certain callable debt securities purchased at a premium. Upon adoption of the standard, premiums on these qualifying callable debt securities will be amortized to the earliest call date. Discounts on purchased debt securities will continue to be accreted to maturity. The amendments are effective for fiscal years beginning after December 15, 2018, and interim periods within those fiscal years. Early adoption is permitted, including adoption in an interim period. Upon transition, entities should apply the guidance on a modified retrospective basis, with a cumulative-effect adjustment to retained earnings as of the beginning of the period of adoption and provide the disclosures required for a change in accounting principle. The Company is currently assessing the impact that this guidance will have on its consolidated financial statements.


(2)
Securities Available-for-Sale
Securities available-for-sale at September 30, 2017 and December 31, 2016 were as follows:
Description
 
Amortized cost
 
Gross unrealized gains
 
Gross unrealized losses
 
Fair value
September 30, 2017:
 
 
 
 
 
 
 
 
U.S. agency securities
 
$
249,760

 
$

 
$
5,172

 
$
244,588

Mortgage-backed securities*
 
28,929,146

 
6,751

 
344,499

 
28,591,398

Municipal bonds
 
11,936,473

 
180,428

 
52,760

 
12,064,141

 
 
$
41,115,379

 
$
187,179

 
$
402,431

 
$
40,900,127

December 31, 2016:
 
 
 
 
 
 
 
 
U.S. agency securities
 
$
249,667

 
$

 
$
6,602

 
$
243,065

Mortgage-backed securities*
 
31,884,681

 
3,206

 
491,081

 
31,396,806

Municipal bonds
 
12,685,114

 
68,278

 
239,306

 
12,514,086

Corporate bonds
 
500,000

 

 
1,120

 
498,880

 
 
$
45,319,462

 
$
71,484

 
$
738,109

 
$
44,652,837

*All mortgage-backed securities are issued by FNMA, FHLMC, or GNMA and are backed by residential mortgage loans.
The amortized cost and estimated fair value of securities available-for-sale at September 30, 2017 are shown below by contractual maturity. Expected maturities will differ from contractual maturities because borrowers may have the right to call or prepay obligations with or without call or prepayment penalties.
 
September 30, 2017
 
Amortized
cost
 
Fair value
Due in one year or less
$
200,000

 
$
200,210

Due after one year through five years
1,998,394

 
2,021,124

Due after five years, but less than ten years
6,361,390

 
6,496,823

Due after ten years
3,626,449

 
3,590,572

 
12,186,233

 
12,308,729

Mortgage-backed securities
28,929,146

 
28,591,398

 
$
41,115,379

 
$
40,900,127


11




The details of the sales of investment securities for the three and nine months ended September 30, 2017 and 2016 are summarized in the following table.
 
Three Months Ended
September 30,
 
Nine Months Ended
September 30,
 
2017
 
2016
 
2017
 
2016
Proceeds from sales
$

 
$
4,791,663

 
$

 
$
12,083,059

Gross gains on sales

 
109,062

 

 
159,262

Gross losses on sales

 
9,209

 

 
44,162

At September 30, 2017 and December 31, 2016, accrued interest receivable for securities available-for-sale totaled $198,486 and $196,227, respectively.
The following tables show the Company’s available-for-sale investments’ gross unrealized losses and fair value, aggregated by investment category and length of time the individual securities have been in a continuous unrealized loss position at September 30, 2017 and December 31, 2016.
 
September 30, 2017
 
Up to 12 months
 
Greater than 12 months
 
Total
 
Fair value
 
Gross unrealized loss
 
Fair value
 
Gross unrealized loss
 
Fair value
 
Gross unrealized loss
U.S. agency securities
$

 
$

 
$
244,589

 
$
5,172

 
$
244,589

 
$
5,172

Mortgage-backed securities
16,977,703

 
193,348

 
9,094,355

 
151,151

 
26,072,058

 
344,499

Municipal bonds
1,600,601

 
24,120

 
1,479,162

 
28,640

 
3,079,763

 
52,760

Total
$
18,578,304

 
$
217,468

 
$
10,818,106

 
$
184,963

 
$
29,396,410

 
$
402,431

 
 
 
 
 
 
 
 
 
 
 
 
 
December 31, 2016
 
Up to 12 months
 
Greater than 12 months
 
Total
 
Fair value
 
Gross unrealized loss
 
Fair value
 
Gross unrealized loss
 
Fair value
 
Gross unrealized loss
U.S. agency securities
$
243,065

 
$
6,602

 
$

 
$

 
$
243,065

 
$
6,602

Mortgage-backed securities
23,646,101

 
404,287

 
5,401,593

 
86,794

 
29,047,694

 
491,081

Municipal bonds
8,798,581

 
239,306

 

 

 
8,798,581

 
239,306

Corporate bonds
498,880

 
1,120

 

 

 
498,880

 
1,120

Total
$
33,186,627

 
$
651,315

 
$
5,401,593

 
$
86,794

 
$
38,588,220

 
$
738,109

The Company’s assessment of other‑than‑temporary impairment is based on its reasonable judgment of the specific facts and circumstances impacting each individual security at the time such assessments are made. The Company reviews and considers factual information, including expected cash flows, the structure of the security, the credit quality of the underlying assets, and the current and anticipated market conditions.
The Company does not intend to sell its available-for-sale investment securities and it is not likely that the Company will be required to sell them before the recovery of its cost. Due to the issuers’ continued satisfactions of their obligations under the securities in accordance with their contractual terms and the

12



expectation that they will continue to do so, and management’s intent and ability to hold these securities for a period of time sufficient to allow for any anticipated recovery in fair value, the Company believes that the investment securities identified in the tables above were temporarily impaired as of September 30, 2017 and December 31, 2016.
(3)
Loans Receivable
At September 30, 2017 and December 31, 2016, loans receivable consisted of the following segments:
 
September 30, 2017
 
December 31, 2016
Loans:
 
 
 
One-to-four family residential
$
46,290,029

 
$
47,315,025

Non-owner occupied one-to-four family residential
2,898,603

 
3,650,171

Commercial real estate
3,858,437

 
3,596,717

Consumer
6,376,336

 
6,604,757

Total loans receivable
59,423,405

 
61,166,670

Discounts on loans purchased
(35,557
)
 
(56,707
)
Deferred loan costs (fees)
(30,987
)
 
(46,462
)
Allowance for loan losses
(516,319
)
 
(487,114
)
 
$
58,840,542

 
$
60,576,387

Accrued interest receivable on loans receivable was $207,434 and $226,722 at September 30, 2017 and December 31, 2016, respectively.
The loan portfolio included approximately $41.0 million of fixed rate loans as of September 30, 2017 and $43.1 million as of December 31, 2016. The loan portfolio also included approximately $18.4 million and $18.1 million of variable rate loans as of September 30, 2017 and December 31, 2016, respectively.
The Company originates residential, commercial real estate loans and other consumer loans, primarily in its Hamilton County, and Buchanan County, Iowa market areas and their adjacent counties. A substantial portion of its borrowers’ ability to repay their loans is dependent upon economic conditions in the Company’s market area.

13



Allowance for Loan Losses
The following tables present the balance in the allowance for loan losses and recorded investment in loans by portfolio segment and based on impairment method as of September 30, 2017 and December 31, 2016.
 
September 30, 2017
 
One-to-four family residential
 
Non-owner occupied on-to-four family residential
 
Commercial
real estate
 
Consumer
 
Total
Allowance for loan losses:
 
 
 
 
 
 
 
 
 
Individually evaluated for impairment
$

 
$

 
$

 
$

 
$

Collectively evaluated for impairment
347,656

 
25,152

 
40,091

 
103,420

 
516,319

Total
$
347,656

 
$
25,152

 
$
40,091

 
$
103,420

 
$
516,319

 
 
 
 
 
 
 
 
 
 
Loans receivable:
 
 
 
 
 
 
 
 
 
Individually evaluated for impairment
$

 
$

 
$
285,038

 
$

 
$
285,038

Collectively evaluated for impairment
46,290,029

 
2,898,603

 
3,573,399

 
6,376,336

 
59,138,367

Total
$
46,290,029

 
$
2,898,603

 
$
3,858,437

 
$
6,376,336

 
$
59,423,405

 
 
 
 
 
 
 
 
 
 
 
December 31, 2016
 
One-to-four family residential
 
Non-owner occupied on-to-four family residential
 
Commercial
real estate
 
Consumer
 
Total
Allowance for loan losses:
 
 
 
 
 
 
 
 
 
Individually evaluated for impairment
$

 
$

 
$

 
$

 
$

Collectively evaluated for impairment
319,849

 
28,231

 
37,135

 
101,899

 
487,114

Total
$
319,849

 
$
28,231

 
$
37,135

 
$
101,899

 
$
487,114

 
 
 
 
 
 
 
 
 
 
Loans receivable:
 
 
 
 
 
 
 
 
 
Individually evaluated for impairment
$

 
$

 
$
297,538

 
$

 
$
297,538

Collectively evaluated for impairment
47,315,025

 
3,650,171

 
3,299,179

 
6,604,757

 
60,869,132

Total
$
47,315,025

 
$
3,650,171

 
$
3,596,717

 
$
6,604,757

 
$
61,166,670



14



Activity in the allowance for loan losses by segment for the three and nine months ended September 30, 2017 and 2016 is summarized in the following tables:
 
Three months ended September 30, 2017
 
Beginning Balance
 
Charge-offs
 
Recoveries
 
Provisions
 
Ending Balance
Loans:
 
 
 
 
 
 
 
 
 
One-to-four family residential
$
326,526

 
$

 
$

 
$
21,130

 
$
347,656

Non-owner occupied one-to-four family residential
30,350

 

 

 
(5,198
)
*
25,152

Commercial real estate
38,453

 

 

 
1,638

 
40,091

Consumer
103,121

 
131

 

 
430

 
103,420

Total
$
498,450

 
$
131

 
$

 
$
18,000

 
$
516,319

 
 
 
 
 
 
 
 
 
 
 
Three months ended September 30, 2016
 
Beginning Balance
 
Charge-offs
 
Recoveries
 
Provisions
 
Ending Balance
Loans:
 
 
 
 
 
 
 
 
 
One-to-four family residential
$
367,057

 
$

 
$

 
$
(50,444
)
*
$
316,613

Non-owner occupied one-to-four family residential
31,963

 

 

 
(2,488
)
*
29,475

Commercial real estate
30,309

 
28,730

 

 
31,728

 
33,307

Consumer
86,926

 
13,342

 

 
21,204

 
94,788

Total
$
516,255

 
$
42,072

 
$

 
$

 
$
474,183

 
Nine Months Ended September 30, 2017
 
Beginning Balance
 
Charge-offs
 
Recoveries
 
Provisions
 
Ending Balance
Loans:
 
 
 
 
 
 
 
 
 
One-to-four family residential
$
319,849

 
$
10,945

 
$
133

 
$
38,619

 
$
347,656

Non-owner occupied one-to-four family residential
28,231

 

 

 
(3,079
)
 
25,152

Commercial real estate
37,135

 

 

 
2,956

 
40,091

Consumer
101,899

 
14,054

 
71

 
15,504

 
103,420

Total
$
487,114

 
$
24,999

 
$
204

 
$
54,000

 
$
516,319

 
 
 
 
 
 
 
 
 
 
 
Nine Months Ended September 30, 2016
 
Beginning Balance
 
Charge-offs
 
Recoveries
 
Provisions
 
Ending Balance
Loans:
 
 
 
 
 
 
 
 
 
One-to-four family residential
$
366,858

 
$
5,610

 
$

 
$
(44,635
)
*
$
316,613

Non-owner occupied one-to-four family residential
44,510

 

 

 
(15,035
)
*
29,475

Commercial real estate
32,443

 
28,730

 

 
29,594

 
33,307

Consumer
61,367

 
16,955

 
300

 
50,076

 
94,788

Total
$
505,178

 
$
51,295

 
$
300

 
$
20,000

 
$
474,183

* The negative provisions for the various segments are either related to the decline in outstanding balances in each of those portfolio segments during the time periods disclosed and/or improvement in the credit quality factors related to those portfolio segments.

15



(a)
Loan Portfolio Segment Risk Characteristics
One-to-four family residential: The Company generally retains most residential mortgage loans that are originated for its own portfolio. The market value of real estate securing residential real estate loans can fluctuate as a result of market conditions in the geographic area in which the real estate is located. Adverse developments affecting real estate values in the Company’s market could increase credit risk associated with its loan portfolio. Additionally, real estate lending typically involves large loan principal amounts and the repayment of the loans generally is dependent, in large part, on the borrower’s continuing financial stability, and is therefore more likely to be affected by adverse personal circumstances.
Non-owner occupied one-to-four family residential: The Company originates fixed-rate and adjustable-rate loans secured by non-owner occupied one-to-four family properties. These loans may have a term of up to 30 years. Generally the Bank will lend up to 75% of the property’s appraised value. Appraised values are determined by an outside independent appraiser. In deciding to originate a loan secured by a non-owner occupied one-to-four family residential property, management reviews the creditworthiness of the borrower and the expected cash flows from the property securing the loan, the cash flow requirements of the borrower and the value of the property securing the loan. This segment is generally secured by one-to-four family properties.
Commercial real estate: On a very limited basis, the Company originates fixed-rate and adjustable-rate commercial real estate and land loans. These loans may have a term of up to 30 years. Generally the Bank will lend up to 75% of the property’s appraised value. Appraised values are determined by an outside independent appraiser. In recent years, the Company has significantly reduced the emphasis on these types of loans and does not intend to emphasize these types of loans in the future. This segment is generally secured by retail, industrial, service or other commercial properties and loans secured by raw land, including timber.
Consumer: Consumer loans typically have shorter terms, lower balances, higher yields, and higher rates of default. Consumer loan collections are dependent on the borrower’s continuing financial stability, and are therefore more likely to be affected by adverse personal circumstances. This segment consists mainly of loans collateralized by automobiles. The collateral securing these loans, may depreciate over time, may be difficult to recover and may fluctuate in value based on condition.
(b)
Charge‑off Policy
The Company requires a loan to be at least partially charged off as soon as it becomes apparent that some loss will be incurred, or when its collectability is sufficiently questionable that it no longer is considered a bankable asset. The primary considerations when determining if and how much of a loan should be charged off are as follows: (1) the potential for future cash flows; (2) the value of any collateral; and (3) the strength of any co-makers or guarantors.
(c)
Troubled Debt Restructurings (TDR)
All loans deemed troubled debt restructurings, or “TDR”, are considered impaired, and are evaluated for collateral sufficiency. A loan is considered a TDR when the Bank, for economic or legal reasons related to a borrower’s financial difficulties, grants a concession to the borrower that the Bank would not otherwise consider. There were no new troubled debt restructurings in the first nine months of 2017.
(d)
Loans Measured Individually for Impairment
Loans that are deemed to be impaired are reserved for with the necessary allocation. All loans deemed troubled debt restructurings are considered impaired. Generally loans for 1-4 family residential and consumer are collectively evaluated for impairment.

16



(e)
Loans Measured Collectively for Impairment
All loans not evaluated individually for impairment are grouped together by type and further segmented by risk classification. The Company’s historical loss experiences for each portfolio segment are calculated using a 12 quarter rolling average loss rate for estimating losses adjusted for qualitative factors. The qualitative factors consider economic and business conditions, changes in nature and volume of the loan portfolio, concentrations, collateral values, level and trends in delinquencies, external factors, lending policies, experience of lending staff, and monitoring of credit quality.
The following tables set forth the composition of each class of the Company’s loans by internally assigned credit quality indicators.
 
Pass
 
Special
mention/watch
 
Substandard
 
Doubtful
 
Total
September 30, 2017:
 
 
 
 
 
 
 
 
 
Loans
 
 
 
 
 
 
 
 
 
One-to-four family residential
$
44,327,329

 
$
1,552,019

 
$
410,681

 
$

 
$
46,290,029

Non-owner occupied one-to-four family residential
2,528,979

 
369,624

 

 

 
2,898,603

Commercial real estate
3,313,998

 
257,381

 
287,058

 

 
3,858,437

Consumer
6,050,785

 
304,448

 
21,103

 

 
6,376,336

Total
$
56,221,091

 
$
2,483,472

 
$
718,842

 
$

 
$
59,423,405

 
 
 
 
 
 
 
 
 
 
 
Pass
 
Special
mention/watch
 
Substandard
 
Doubtful
 
Total
December 31, 2016:
 
 
 
 
 
 
 
 
 
Loans
 
 
 
 
 
 
 
 
 
One-to-four family residential
$
45,851,480

 
$
978,513

 
$
485,032

 
$

 
$
47,315,025

Non-owner occupied one-to-four family residential
3,299,494

 
36,298

 
314,379

 

 
3,650,171

Commercial real estate
3,009,623

 
289,556

 
297,538

 

 
3,596,717

Consumer
6,324,360

 
270,478

 
9,919

 

 
6,604,757

Total
$
58,484,957

 
$
1,574,845

 
$
1,106,868

 
$

 
$
61,166,670

Special Mention/Watch – Loans classified as special mention/watch are assets that do not warrant adverse classification but possess credit deficiencies or potential weakness deserving close attention.
Substandard – Substandard loans are inadequately protected by the current net worth and paying capacity of the obligor or of the collateral pledged, if any. Loans so classified have a well‑defined weakness or weaknesses that jeopardize the liquidation of the debt. They are characterized by the distinct possibility that the Company will sustain some loss if the deficiencies are not corrected.
Doubtful – Loans classified doubtful have all the weaknesses inherent in those classified substandard with the added characteristic that the weaknesses make collection or liquidation in full, on the basis of currently known facts, conditions and values, highly questionable, and improbable.
The Company had one impaired loan as of September 30, 2017 and December 31, 2016. No interest income was recorded on impaired loans during 2017 or 2016.

17



(f)
Nonaccrual and Delinquent Loans
Loans are placed on nonaccrual status when (1) payment in full of principal and interest is no longer expected or (2) principal or interest has been in default for 90 or more (unless the loan is well secured with marketable collateral).
A nonaccrual asset may be restored to an accrual status when all past-due principal and interest has been paid and the borrower has demonstrated satisfactory payment performance (excluding renewals and modifications that involve the capitalizing of interest).
Delinquency status of a loan is determined by the number of days that have elapsed past the loan’s payment due date, using the following classification groupings: 30-59 days, 60-89 days, and 90 days or more. Loans shown in the 30‑59 day’s and 60‑89 day’s columns in the table below reflect contractual delinquency status only, and include loans considered nonperforming due to classification as a TDR or being placed on nonaccrual.
The following tables set forth the composition of the Company’s past-due loans at September 30, 2017 and December 31, 2016.
 
30-59 days
past due
 
60-89 days
past due
 
90 days
or more
past due
 
Total
past due
 
Current
 
Total loans receivable
 
Recorded investment > 90 days and accruing
September 30, 2017:
 
 
 
 
 
 
 
 
 
 
 
 
 
Loans
 
 
 
 
 
 
 
 
 
 
 
 
 
One-to-four family residential
$
676,500

 
$
323,229

 
$
378,851

 
$
1,378,580

 
$
44,911,449

 
$
46,290,029

 
$
228,226

Non-owner occupied one-to-four family residential
177,538

 

 

 
177,538

 
2,721,065

 
2,898,603

 

Commercial real estate

 

 
287,058

 
287,058

 
3,571,379

 
3,858,437

 

Consumer
214,092

 
46,200

 
6,103

 
266,395

 
6,109,941

 
6,376,336

 
6,103

Total
$
1,068,130

 
$
369,429

 
$
672,012

 
$
2,109,571

 
$
57,313,834

 
$
59,423,405

 
$
234,329

 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
30-59 days
past due
 
60-89 days
past due
 
90 days
or more
past due
 
Total
past due
 
Current
 
Total loans receivable
 
Recorded investment > 90 days and accruing
December 31, 2016:
 
 
 
 
 
 
 
 
 
 
 
 
 
Loans
 
 
 
 
 
 
 
 
 
 
 
 
 
One-to-four family residential
$
706,135

 
$
272,378

 
$
258,009

 
$
1,236,522

 
$
46,078,503

 
$
47,315,025

 
$
193,251

Non-owner occupied one-to-four family residential

 
36,298

 
56,639

 
92,937

 
3,557,234

 
3,650,171

 
56,639

Commercial real estate
27,143

 

 
297,538

 
324,681

 
3,272,036

 
3,596,717

 

Consumer
190,455

 
80,023

 
1,365

 
271,843

 
6,332,914

 
6,604,757

 
1,365

Total
$
923,733

 
$
388,699

 
$
613,551

 
$
1,925,983

 
$
59,240,687

 
$
61,166,670

 
$
251,255


18



The following tables set forth the composition of the Company’s recorded investment in loans on nonaccrual status as of September 30, 2017 and December 31, 2016.
 
September 30, 2017
 
December 31, 2016
Loans
 
 
 
One-to-four family residential
$
150,625

 
$
291,779

Non-owner occupied one-to-four family residential

 
314,380

Commercial real estate
287,058

 
297,538

Consumer

 
8,554

Total
$
437,683

 
$
912,251

(4)
Deposits
At September 30, 2017 and December 31, 2016, deposits are summarized as follows:
 
September 30, 2017
 
December 31, 2016
Statement savings
$
14,529,038

 
$
12,031,554

Money market plus
11,975,410

 
11,169,038

NOW
18,382,024

 
18,489,727

Certificates of deposit
40,516,247

 
45,399,361

 
$
85,402,719

 
$
87,089,680


Included in the NOW accounts were approximately $4.7 million and $4.8 million of non-interest bearing deposits as of September 30, 2017 and December 31, 2016, respectively.
(5)
Taxes on Income
Taxes on income comprise the following:
 
September 30, 2017
 
Federal
 
State
 
Total
Current
$
(310
)
 
$
5,700

 
$
5,390

Deferred
(64,687
)
 
(1,000
)
 
(65,687
)
 
$
(64,997
)
 
$
4,700

 
$
(60,297
)
 
 
 
 
 
 
 
September 30, 2016
 
Federal
 
State
 
Total
Current
$
24,747

 
$
11,268

 
$
36,015

Deferred
(11,000
)
 
8,000

 
(3,000
)
 
$
13,747

 
$
19,268

 
$
33,015


Taxes on income differ from the amounts computed by applying the federal income tax rate of 34% to earnings before taxes on income for the following reasons, expressed in dollars:

19



 
September 30, 2017
 
September 30, 2016
Federal tax at statutory rate
$
33,164

 
$
85,004

Items affecting federal income tax rate:
 
 
 
State taxes on income, net of federal benefit
3,102

 
12,717

Tax-exempt income
(64,366
)
 
(94,458
)
Bank-owned life insurance
(31,613
)
 

Valuation allowance
15,000

 

Other
(15,584
)
 
29,752

 
$
(60,297
)
 
$
33,015


Federal income tax expense for the periods ended September 30, 2017 and December 31, 2016 was computed using the consolidated effective federal tax rate. The Company also recognized income tax expense pertaining to state franchise taxes payable individually by the Bank.
The tax effects of temporary differences that give rise to significant portions of deferred tax assets and deferred tax liabilities at September 30, 2017 and December 31, 2016 are presented below:
 
September 30, 2017
 
December 31, 2016
Deferred tax assets:
 
 
 
Deferred directors’ fees
$
322,000

 
$
338,000

Allowance for loan losses
193,000

 
182,000

Net operating loss carryforward
186,000

 
138,000

AMT credit
44,924

 
35,000

Charitable contribution
88,000

 
86,000

Professional fees
76,000

 
77,000

Securities available-for-sale
79,977

 
246,159

Fixed assets
29,000

 

Other
19,182

 
28,420

Gross deferred tax assets
1,038,083

 
1,130,579

Valuation allowance
(121,000
)
 
(106,000
)
Net deferred tax assets
917,083

 
1,024,579

Deferred tax liabilities:
 
 
 
Prepaid expenses
(21,000
)
 
(21,000
)
FHLB stock dividends
(38,000
)
 
(38,000
)
Fixed assets

 
(6,000
)
Intangible assets
(24,000
)
 
(25,000
)
Gross deferred tax liabilities
(83,000
)
 
(90,000
)
Net deferred tax assets
$
834,083

 
$
934,579


Based upon the Company’s level of historical taxable income and anticipated future taxable income over the periods that the deferred tax assets are deductible, management has reviewed whether it is more likely than not the Company will realize the benefits of these deductible differences. Management has determined that a valuation allowance was required for deferred tax assets at September 30, 2017 and December 31, 2016, related to the charitable contribution carryforward and Iowa corporate net operating loss carryovers. The charitable contribution expires if not used by